If Y2K was the sector's baby steps that hurled IT companies into a hyper-conditions.NEW DELHI/MUMBAI: Other than the goods and services tax, which is now mired in political wrangling, Indian technology firms are turning their backs on most government projects, industry executives said, leaving the possibility that the technology backbone of the government's ambitious Digital India programme could see little Indian participation.

"There are still lots of problems to iron out. The industry does not trust projects in which they have to invest because non-recovery of investment in government projects is still an issue. Other than GST, which has a streamlined payment mechanism, few other projects are seeing active participation," said an industry source.

Indian IT companies have said that over Rs 5,000 crore of payments are stuck with the government. While delayed payments have been a longstanding issue which prevents Indian IT companies from bidding for government projects, the lack of clarity and changes in requirements in the middle of an ongoing project have also held them back.

"The interest in the industry on bidding for projects where there is backended payment is low," said Neel Ratan, leader, government and public sector at consultancy PwC India. Last month, Infosys chairman Narayana Murthy said there was not a single government project the company had undertaken where it had not lost money. The firm is among the five bidders of the GST project, along with TCS, Wipro, Tech Mahindra and Microsoft.

Anant Gupta, chief executive of HCL Technologies, told ET earlier this month that payment terms of government projects were "as challenging as they were", but it was unfair to expect a major overhaul given the regulatory requirements of transparency that government projects come with. "Government projects are now becoming very large, so one company cannot bid, and they (companies) want to take part in a consortium model. But, in this model, if one party runs out of energy, cash or resources…everybody suffers because the government will not pay unless everything is over," said an IT consultant who did not wish to be named.

Recently, the finance ministry put out a nearly Rs 150-crore tender for building a system called Project Insight, which will help catch tax evaders. The project has not found many takers because payment will be made on a transactional basis over a period of five years.

"A lot of contracts are also becoming managed services contracts, which means you don't just have to build the system but you also have to operate them. Therefore, the cycles are even longer," said the IT consultant quoted above.

The lack of interested bidders could also be leading to oversight about the credentials of interested companies. For example, one of the companies shortlisted for providing the analytics platform for the government’s crowdsourcing platform MyGov is Zylog Systems, which has a court-appointed liquidator since November last year. Other bidders include IBM, HP, PC Solutions and SAS Institute India.

Microsoft India chairman Bhaskar Pramanik agreed that the government’s payment terms were "a little lopsided". While the formal policy of the government of India covers most of contentious issues about the ability to make payments appropriately, they are not always followed in practice, he added.

However, not all companies necessarily see a reduced interest in government contracts. "The opportunities in Digital India are exciting. We have been cautious on government projects. You can’t generalise and say people won’t participate because different companies will have different risk appetites," said Aruna Jayanthi, CEO, of Capgemini India.